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Daily Newsletter, Friday, 12/31/1999

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The Option Investor Newsletter Friday update for Sunday 1-02-2000
Copyright 1999, All rights reserved.
Redistribution in any form strictly prohibited.
Posted online for subscribers at http://www.OptionInvestor.com
Entire newsletter best viewed in COURIER 10 font for alignment
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MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
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WE 12-31 WE 12-24 WE 12-17 WE 12-10
DOW 11497.12 + 91.36 11405.76 +148.33 11257.43 + 32.73 - 61.48
Nasdaq 4069.28 + 99.84 3969.44 +216.38 3753.06 +132.82 + 99.61
S&P-100 792.83 - 2.73 795.56 + 21.63 773.93 + 10.44 - 3.99
S&P-500 1469.25 + 7.81 1461.44 + 40.39 1421.05 + 4.01 - 16.26
RUT 504.75 + 26.81 477.94 + 11.73 466.21 - .50 + 2.13
TRAN 2977.20 + 89.50 2887.70 - 30.72 2918.42 + 43.48 - 53.86
VIX 26.71 + 3.59 23.12 + .11 23.01 + 2.09 + .10
Put/Call .51 .47 .43 .45
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So far, so good!
As I write this six time zones have now celebrated the New Year and
there have been no serious reported problems. As the news from New
Zealand and Japan filtered through the market the relief was almost
audible. Volume started picking up and many stocks saw reversals of
early morning dips.
Without any serious problems in Europe or the U.S. tonight the
Y2K money should start flowing next Monday. The bond market
showed the first signs of the money movement as bonds dropped
almost a full point and yields bounced back up to 6.48%. The
bond market had been firming all week as money moved into the
safety of bonds in advance of the Y2K event. The flow of
money back out so quickly is a good sign and should point to
a trend for next week.
It appears an accidental nuclear war has been averted. One hour
into the new year, Moscow confirmed that all weapons delivery
systems had been checked and all were now certified Y2K safe.
That should be good news for the Russians in Colorado Springs
soaking up our winter sunshine and every military secret they
can grab while on the joint Y2K watch. Now if only our systems
don't launch at midnight.
The world markets celebrated in advance as each time zone marked
the passage into 2000. The Paris market closed at a new high as
well as Hong Kong and Singapore. Tokyo closed at the high for
the year. Sydney Australia also ended the year at a record high.
The Dow, Nasdaq and S&P all closed the year with new record highs
and there was no sign of weakness even going into the close.
The Nasdaq finished the year up +85% for the biggest year on
record.
The stock of the year, QCOM, showed good strength today in
post split trading. On six times normal volume at 36 mln
shares QCOM managed to add another +20 points to $181 before
selling pressure took its toll. QCOM closed up +14 at $176
but traded down slightly in after hours. Monday is the real
test as traders try to decide to hold or lock in profits in
the new tax year. I had many emails today asking why the option
premiums dropped even though the stock was up. No, they were
not bad quotes. The option premiums were so high on the pre-split
QCOM because of the increased expectation of huge swings on a
$600 stock. With prices moving $100 intraday the option writers
get more premium for taking more risk. After the split to $160
the expectations for those big moves are much less. The split
is over, earnings are not until February and there has been a
huge runnup. Experienced option traders know that there is a
better than 50/50 chanec that there will be some serious profit
taking in January and the premiums dropped because of the
decreased upside expectations. Some of the options dropped
-$10 to $15 after the split even though the stock was higher.
This is a normal event when trading stock splits.
There is no news that would change my outlook for Mon/Tue. It
still looks like we will go higher before we pause for profit
taking in January. The advance decline line was highly positive
with advancers leading 5:3 on the Nasdaq and 2:1 on the NYSE.
The closing ticks were a highly bullish +1128. The jobs report
on Friday should be the first real pothole that could derail
the current rally.
Have a Happy New Year!
Jim Brown
Editor
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PLAY OF THE DAY FOR MONDAY
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MWD - Morgan Stanley Dean Witter $142.75 (+11.25)
MWD is the #2 retail broker in the US only after Merrill Lynch.
The 1997 merger of Morgan Stanley and Dean Witter created
an investment banking and retail brokerage powerhouse. The
company is now a global financial service firm with three
primary business segments: securities, asset management, and
credit services. Its Discover unit has been one of the leading
credit card issuers. MWD has more than 430 branches in the
US and some 30 more abroad. Its clients include both
individuals and institutions.
Breakout! This financial stock is splitting 2:1 on January 12th
and it seems the party has begun. On Wednesday MWD shattered
its strong resistance at $135 and has consecutively powered
higher. MWD outdid yesterday's stellar performance and set
another new record today. Overhead opposition is now at $142.38
with near-term support likely to evolve around the 5-dma now
at $135.51. The 10-dma ($131.97) has yet to catch-up with the
recent gains, but marks a stronger support level. Look for
intraday dips that fit your risk portfolio to get into this
split play. Although it's important to realize the true
test for this stock will be to hold above $140 over the next
few trading sessions. Keep in mind too that MWD is a financial
stock and was certainly influenced by the lower bond yield that
ultimately aided the broad market advances.
In the news JP Morgan, Goldman Sachs, and Morgan Stanley Dean
Witter are reported to be in talks to buy Credito Fondiario &
Industriale SpA, an Italian corporate lender with a market
value of about $247.7 mln. All the companies failed to comment
on the rumor.
BUY CALL JAN-135 MWD-AG OI=2133 at $11.63 SL=9.00
BUY CALL JAN-140*MWD-AH OI=1235 at $ 8.38 SL=6.50
BUY CALL JAN-145 MWD-AI OI= 208 at $ 6.00 SL=4.50
BUY CALL FEB-140 MFZ-BH OI= 157 at $12.13 SL=9.50
Picked on Dec 30th at $141.25 P/E = 19
Change since picked +1.50 52-week high=$142.88
Analysts Ratings 4-4-6-0-0 52-week low =$ 70.81
Last earnings 12/99 est= 1.85 actual= 2.84
Next earnings 03-27 est= 1.85 versus= 1.76
Average Daily Volume = 2.00 mln
Chart = http://quote.yahoo.com/q?s=MWD&d=3m
***********
ADI - Analog Devices $93.00 (+11.63)
ADI is a semiconductor company. They design, manufacture, and
market analog and digital integrated circuits (ICs) including
digital signal processors. Most of the company's components are
used by original equipment manufacturers (OEMs) and include such
clients as 3Com, Hewlett-Packard, and Electrolux. Analog Devices
have operations in the US, the Philippines, Taiwan, and Ireland.
ADI has been trending up this week and we do not want to miss
out on the momentum. Not too long ago bottom support was
rock solid at $75 with $80 to $81 rendering a strong channel of
opposition. But on Tuesday the tightening coil was sprung and
ADI clearly moved north and separated itself from the 10-dma
(now at $81.77). The next two days have followed with newer
highs and strong closes. If momentum does let up a bit after
these recent gains, look for bounces off the 5-dma (now at
$84.88) for confirmation that the uptrend is indeed intact
before jumping in headfirst.
On Wednesday, ADI received a big boost from Rick Whittington,
analyst at Banc of America. He reiterated his Strong Buy
rating and lifted fiscal estimates citing "improved fundamental
visibility" and that annual revenue growth "should be at least
30-40% each of next five years". He topped it all off by
raising the target price for ADI to $150 from $100.
BUY CALL JAN-85*ADI-AQ OI=248 at $11.00 SL=8.50
BUY CALL JAN-90 ADI-AR OI=340 at $ 7.88 SL=6.00
BUY CALL JAN-95 ADI-AS OI=126 at $ 5.50 SL=4.25
BUY CALL FEB-90 ADI-BR OI= 25 at $11.25 SL=8.75
BUY CALL FEB-95 ADI-BS OI= 0 at $ 9.00 SL=7.00 New Strike
Picked on Dec 30th at $90.44 P/E = 106
Change since picked +2.56 52-week high=$94.50
Analysts Ratings 10-5-1-0-0 52-week low =$24.38
Last earnings 12/99 est= 0.35 actual= 0.40
Next earnings 02-17 est= 0.44 versus= 0.18
Average Daily Volume = 1.70 mln
Chart = http://quote.yahoo.com/q?s=ADI&d=3m
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DISCLAIMER
***********
This newsletter is a publication dedicated to the education
of options traders. The newsletter is an information service
only. The information provided herein is not to be construed
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newsletter picks are not to be considered a recommendation
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